world islamic economic forum (wief) madinah institute for leadership and entrepreneurship (mile) 7...
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World Islamic Economic Forum (WIEF)
Madinah Institute for Leadership and Entrepreneurship (MILE)
7th WIEF Roundtable
Madinah, Saudi Arabia
Promoting Growth through Public Private Partnership : Global Lessons
17 April 2013
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Public Private Partnership
► A Public Private Partnership (“PPP”) is a contractual relationship between a government and a private sector entity
► The private entity finances, builds infrastructure assets and provides operations and maintenance services
► Some key principles of PPPs are: ► Public sector pays for the “service” and not the “asset”► No payment until asset is operational► Value for money► Risk allocation (to the party best able to manage the risk)► Requires competitive bidding and► Output specification for services
► Synonyms of PPPs include PSPs (private sector participation), Joint Ventures and Privatizations.
► A typical PPP are BOOT contracts (Build Own Operate Transfer)
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What are PPPs?
► Alternative way of funding projects► Introduces private finance to public sector projects► Public Sector defines and buys a service not an asset► Private Sector delivers the service (and assets as required)► PPP structure is usually to create a single standalone business,
financed and operated by the private sector► Create the asset and then deliver the service to the public sector
client, in return for payment commensurate with the service levels provided
Public Sector:
Required Services
Share operational role
Private Sector:
Creates assets
Shares operational role
Service Delivery
Payment for Performance
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Pros
► Improved and consistent provision of services
► Certainty over financial outcomes
► Improved risk allocation –i.e. risk transfer
► Improved asset utilization► Encourage private sector
innovation through output based approach
► Competition drives down project cost
► Whole-of-life approach to project costing
Cons
► Complex contractually to negotiate
► Longer time to implement than traditional projects
► High implementation costs:
► Finance► Fees► Due diligence► Developer resources
Pros and cons of PPPs
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Debt funding~80-90%
Special purpose vehicle
Public Authority
Equity funding~10-20%
Contractor ADesign
Operator ESoft FM
Operator FEnergy
Management
PFI and PPP structuresPPP Structure more commonly shown as..
Note: The high gearing would be typical of an availability based payment mechanism
Operation & Maintenance Contracts
Operator CLifecycle
Contractor BBuild
Operator DHard FM
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PPP Risk Transfer
Private Sector Risk
Public Sector Risk
DBFOM
Public Sector Private Sector
Risk
Transfe
r
Design-Bid-Build
Design-Build
Build-Operate-Transfer
DBOM
BOO
Privatization
Build-Transfer-Operate
EPC
Key:
Outsourcing
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Latest challenges surrounding the effectiveness of PPP
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
1%
2%
3%
Illustrative PFI debt margins (UK)
Source: UK Treasury
• Shorter term finance• Hard and soft mini perms• Club deals over syndication• Extended debt tails• Increased equity contribution• Larger deals bond financed
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PPP Transaction Debt Margins (Q1 2013)
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,5000
200
400
600
800
1,000
1,200
Americas Asia Central Africa ME Europe
Value (US$ million)
Mar
in (b
ps)
Recent loans in the infrastructure sector (2013 Q1) show an average range of 250-350 bps in debt margins globally
Source: EY Analysis of Thompson data for the 3 months up to 9 April 2013
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Successful PPP’s in the MENA Region
Project cost/concession period
Debt: Equity (%)
Debt Margins(bps)
Sponsor(s) BanksFinancial Close
Medinah Airport Expansion (KSA)
• US$ 1,204.3m• 25 years 60:40 -
TAV Airports Holding, Saudi Oger, Al Rajhi groups
Arab National Bank, National Commercial Bank, SABB and SMBC
July 2012
Qurrayah IPP(Saudi Arabia)
• US$ 2.975 b• 20 years
74:26- ACWA Power, Samsung C&T ,
MENA Infrastructure Fund, SEC
BSF, NCB, Standard Chartered, HSBC, Samba, SABB, ANB, SMBC and KfW plus equity bridge providers
Dec 2011
Muharraq Wastewater STP(Bahrain)
• US$ 328m• 29 years
85:15 220 – 275Samsung Engineering, Invest AD, United Utilities
Credit Agricole CIB, Natixis, Sumitomo Mitsui Banking Corp.
July 2011
PP11 IPP (Saudi Arabia)
• US$ 2.1 b• 20 years
75:25 250 – 340GDF Suez, Al Jomaih Group, Sojitz, SEC
Credit Agricole, Standard Chartered, EDC, KfW, Societe Generale, Intesa, CIC, Alinma Bank, NCB, BSF and Samba
June 2010
Shuweihat II IWPP (Abu Dhabi)
• US$ 2.68 b• 25 years
79:21 260 GDF Suez, Marubeni, ADWEABank of Tokyo Mitsubishi UFJ, Sumitomo Mitsui Banking Corp., KfW BankenGruppe plus 10 others
Oct 2009
Paris-Sorbonne University (Abu Dhabi)
• US$ 412m• 28 years
85:15 200 - 275 Mubadala Calyon, Bank of Tokyo Mitsubishi UFJ, SMBC, Royal Bank of Scotland, BNP Paribas, First Gulf Bank
Dec 2008
Queen Alia Airport (Jordan)
• US$795m• 26 years
47:53 175
Aeroport de Paris Management (AdPM), J&P Overseas, J&P Avax, Abu Dhabi Investment Company (ADIC), Engineering and Development Group, Noor Financial Investments
Crédit Agricole Group , Europe Arab Bank , Natixis, Islamic Development Bank, IFC
Nov 2007
Zayed University (Abu University)
• US$1 b• 10 years
83: 10 with 7% Mez
290 – 395 Mubadala Bank of Tokyo-Mitsubishi UFJ , First Gulf Bank , Crédit Agricole Group , Royal Bank of Scotland , SMBC and BNP Paribas
Nov 2009
Source: IJ Online – Inspiratia - MEED
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Effectiveness of PPP
Advocacy
Decision
Making
Solid
Business
Case
OperationConstructionFeasibilityPlanning
Concession granted
Comments:
Advocacy:
• Visioning for the Project• Monitoring of the Concession
Decision Making:
• Agreement to take into transaction phase based in market testing
• Selection of appropriate SPV• Intervention when output specifications not
delivered
Solid Business Case:
• Determining the basis for private sector participation
• Engaging market for best price against service delivered (i.e. Value for Money)
• Delivery on outline case
Procurement
Commercial CloseFinancial Close
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Current strategies in various countries in the region
Saudi Arabia No central PPP Unit
(Municipalities) Projects closed in waste water and
aviation Pipeline: IWPP, transport, city
development
Egypt Delivered projects in social,
utilities, transport Decree No. 238 of 2011 Egypt’s
PPP Law Pipeline: Healthcare, Ports
Libya All infrastructure sectors PPP model being considered by
new government Pipeline: Transport, healthcare,
education, power, refineries
Jordan Transport, however attempted
using PPP on renewable projects
Privatisation law in 2000 followed up by PPP regulations in 2008
Pipeline: water, transport
Qatar PPP framework under development Healthcare, education, housing, IWPP Pipeline: Education, healthcare,
housing, IWPP
Kuwait IWPP, social and transport PPP Law, PTB Pipeline: Many PTB projects
on hold
Bahrain IPP/IWPP/ waste water Privatization committee Pipeline: Social housing
UAE IPP/IWPP, Social,
transport
Abu Dhabi No PPP Legislative
framework No defined pipeline
Dubai PPP legislation in
process Pipeline: Transport
Oman Power and water (IPP/IWPP) Regulation comment Pipeline: Education, healthcare,
housing
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Global Examples
Australia Mature PPP market Pipeline projects in
education and transport aligned to the commodity industry
South Africa PPP Unit created in
2000 Potential PPP
projects in healthcare, waste and water management to improve agricultural sector
UK PF2 being rolled out Lack of clear pipeline of future projects,
however rail and nuclear appear to be signature projects being carried forward
India Political will for PPP
and private sector participation is strong
1,965 total PPP projects up to 2011
Opportunities in transport sector
Nigeria Closed deal on
highway PPP PPP pipeline focused
on transport and power (e.g. Lagos Airport)
USA Total of 34 states
(including Puerto Rico) possessing dedicated P3 legislation
All Sectors,, however key sectors include transport (e.g. Chicago Midway Airport), social accommodation, and renewables
Canada PPP model supported at
both federal and provincial levels
33 operational PPPs Pipeline projects focus is
transport
Spain Mature PPP market with significant recent
volumes of secondary market sales Pipeline projects in transport
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Partnership strategies for successful implementation of PPP
Fund raising incentives
Expropriationof private land
Organizationand legal
framework
Central PPP Unit
Government equity stake in
the SPV
• Subsidies e.g. interest accrued on loans• Investment grants for construction• Coordinating with financial institutions to provide medium/long term financing (i.e.
refi-risk, subsidise accrued interest etc)• Examples include Egypt Authorities covering changes in base rate but not
margins• Where necessary, authority expropriate land for use by the private investor• Provision of infrastructure ready sites with plots enabled through connections to
the utilities grid• Examples include Dubai and Bahrain free zones
• Significant relaxation of regulatory impediments and restrictions• Investment in public sector procurement authorities• Transparent and consistent tendering process• Examples include Kuwait’ Law 2007 with Dubai also drafting a PPP law
• Captures lessons learnt for future projects• Consistent assessment and benchmarking of projects by Higher Committee• Fair and transparent approach to procurement• Examples include Kuwait’s Partnerships Technical Bureau (PTB)
• Ultimate form of risk sharing• Enables control of the project through regular government intervention• Examples include Omani IWPP transactions and latest Treasury advice from UK
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Questions?